Indian gold demand shrank 18% in the quarter through June to 131 tonne, recording a second straight quarter of fall and far lower than a 15% jump globally, according to the latest report by the London-based World Gold Council (WGC).
Although the WGC expects demand to pick up in the second half of this calendar year on anticipation good monsoon would boost rural fortunes, it has still projected the country’s demand in the range of 750-850 tonne in 2016, compared with 863 tonne in 2015. This is because Indian demand volume already dropped a massive 29.6% in the first half of 2016 from a year before to just 247.4 tonne.
Releasing the report here, WGC managing director (India) Somasundaram PR said, “Elevated price levels and a regulatory push for transparency through PAN cards, tax collection at source and excise duty on jewellery, coupled with weaker rural incomes kept demand subdued.”
Importantly, smuggling of gold into the country could surge to 144-160 tonne in 2016 from 120 tonne in 2015, the miners’ body said in the report. Industry executives say apart from the usual high basic customs duty of 10% on gold, one of the reasons for the likely spurt in smuggling is that unorganised players, who account for over 70% of the Indian gold market, are still not very forthright in complying with the new excise duty norm.
“In the remaining six months of 2016, we anticipate gold demand to return to normalcy during the peak season of weddings and festivals closer to Diwali, supported by good monsoon that will positively impact rural demand,” Somasundaram said.
The fall in demand value in the June quarter, however, dropped at a lower pace of just 8.7% in rupee term (than demand volume) from a year before to R35,500 crore, thanks to a rise in prices. The average domestic gold price touched R27,099.4 per 10 grams in the June quarter, up 11% from a year before.
Global demand surges
Global gold demand rose 15% in the June quarter to 1,050 tonne, as investment demand jumped 141% even though the jewellery segment saw a fall, showed the WGC data. Investment demand reached near-record level of 448 tonne as “investors sought risk diversification and a safe store of value in the face of continued political, economic and social instability”. In fact, global investment demand touched a record in the first half of 2016.
Exchange traded funds (ETFs) had a stellar first half of the year at almost 580 tonne due to the additional inflows of 237 tonne in the June quarter.
While the June quarter saw the lowest level of net purchases since Q2 2011, it comes amid a significant rise in gold prices over the first half of this year, which dramatically increased the value of central bank gold holdings to $1.4 trillion, the WGC said.
Alistair Hewitt, head of market intelligence at the WGC, said, “The strength of this (June) quarter’s demand means that the first half of 2016 has been the second highest for gold on record, weighing in at 2,335 tonne. The global picture for gold is dominated by considerable and continued investment demand, driven by the West as investors re-balance their investments in response to the ever-expanding pool of
negative yielding government bonds and heightened political and economic uncertainty.”